"If you own a television, chances are you're quite familiar with the infamous squawking duck in Aflac's commercials. Aflac has also been in the news lately as the first American company to give shareholders a 'say on pay', or the ability to vote on executive compensation.
"Less well known, however, is Aflac's huge presence in the Japanese insurance market. In 2007, roughly 75% of the company's pre-tax operating earnings were generated in Japan.
"Alfac has been doing business in Japan for more than 30 years, and one in four Japanese households has an Aflac insurance policy. In Japan, Aflac sells healthcare policies for certain things that aren't covered by the national healthcare system, as well as life insurance. And, yes, they have a talking duck in their ads over there too.
"At a time when many financial companies are reporting massive write-offs, Aflac reiterated its target of 15% earnings growth this year, and double-digit growth in 2009. Aflac Japan is doing its part to help drive this growth with 19% operating earnings growth in the first quarter of 2008."
Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.
Over the past year, we have been hearing a lot of bad news about investment banks and insurers. The slumping housing market, credit crunch and subprime mortgage troubles have been leading the headlines, so many of you are probably shying away from financial stocks as almost all the banks have been getting only bad publicity lately.
In the light of those worries about safe investments, CNNMoney is asking us to reconsider our opinions, claiming that there really are some quality stocks in these challenging financial times.
Berkshire Hathaway tops the list, mainly because of its CEO Warren Buffett, who has the experience of surviving previous recessions. While some investors may have impression that the company has a lot of tough times ahead, CNNMoney sees Berkshire with a lot of capital, which could be enough to steer it through the current economic storm. To support this argument, CNNMoney cites Keppler Asset management CIO Michael Keppler, who is convinced that Berkshire will be able to beat the difficult market.
So shareholders of Aflac (NYSE: AFL) had a really cool idea: wouldn't it be cool if the owners of the company got to have some say in how the top employees at the company were compensated?
I know: blasphemy. But on Monday the company best known for a duck voiced by Gilbert Gottfried became the first company to give its shareholders a say on pay. The result? A big fat nothing. More than 93% of shareholders approved of the $11.96 million compensation package that CEO Daniel P. Amos received for 2007. During Mr. Amos' 18-years at the helm, the stock has appreciated more than 3,000%. So here's a guy who deserves his big payday.
Amazingly, most shareholder resolutions suggesting say-on-pay proposals have been opposed by management and voted down by large institutional shareholders. It's hard to understand given that the votes are simply advisory. Why shouldn't the board hear how shareholders feel about the work of the compensation committee?
But with 93% of voters approving the CEO's package, the say on pay deal at Aflac changes nothing, which is not surprising. Companies that have strong enough corporate governance and shareholders awake enough to demand a say on pay are not likely to suffer from egregious pay problems. The executive compensation outhouses like Countrywide Financial (NYSE: CFC) would never have votes like this.
Aflac (NYSE: AFL), which is a major insurer, has an off-beat message – at least, according to its commercials (which involve a noisy duck).
Well, the company has made some history this week. That is, the shareholders can vote "yes" or "no" on executive compensation.
While it is non-binding, it is still important. If anything, its recognition from Aflac that its shareholders have a say on things.
Funny enough, the company really doesn't need this in terms of pacifying shareholders. After all, Aflac has been a solid performer.
However, does this mean we'll see other firms join in the trend? Perhaps some. But, when it comes to giving up a little power, you're likely to see lots of resistance in the boardroom.
After hitting a one-year low of $48.79 last April, the stock hit a one-year high of $68.81 last week. AFL opened this morning at $66.26. So far today the stock has hit a low of $66.23 and a high of $67.85. As of 10:15, AFL is trading at $67.42, up $2.34 (3.6%). The chart for AFL looks bullish and steady, while S&P gives the stock its highest 5 STARS (out of 5) strong buy rating.
For a bullish hedged play on this stock, I would consider an August bull-put credit spread below the $55 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 6.4% return in just four months as long as AFL is above $55 at August expiration. Evergreen would have to fall by more than 18% before we would start to lose money. Learn more about this type of trade here.
AFL hasn't been below $55 since October and has shown support around $61 recently. This trade could be risky if the slumping economy continues, but even if that happens, this position could be protected by the support the stock might find from its 200-day moving average, which is currently around $60 and rising. Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in AFL.
MOST NOTEWORTHY: RAM Holdings, State Street and Ericsson were today's noteworthy downgrades:
Banc of America downgraded shares of RAM Holdings (NASDAQ: RAMR) to Neutral from Buy as they believe the company could have increasing loss provisions related to RMBS and CDO exposure over the next several quarters.
State Street (NYSE: STT) was cut to Market Perform from Outperform at Keefe Bruyette on valuation and difficult comparisons in the second half of 2008.
HSBC downgraded Ericsson (NASDAQ: ERIC) to Neutral from Overweight and prefers Nokia (NYSE: NOK) at current levels.
"Value stocks are those whose prices are relatively low compared to their fundamental value, as measured by factors such as earnings and net worth," notes Mark Hulbert.
"Value stocks can be considered all-season stocks, as history shows that they can perform well in both up and down markets." Here, the editor of The Hulbert Financial Digest also offers a list of value stocks that recommended by the most advisors who have also beaten the broad market over the last decade on a risk-adjusted basis.
"Value stocks are to be distinguished from so-called growth stocks, which have relatively high price-to-earnings and price-to-book ratios.
"Consider first how value stocks perform during bear markets. Believe it or not, they on average actually tend to make money. It's not only that they lose less money than the overall market, they actually gain.
"Take the 2000-2002 bear market, for example, during which the overall stock market declined by 48.6% (as measured by the dividend-adjusted version of the Dow Jones Wilshire 5000 index (97199001:Dow Jones Wilshire 5000 Composite Index
"In contrast, according to data compiled by University of Chicago finance professor Eugene Fama and Dartmouth University finance professor Kenneth French, the average value stock over this time gained over 80%.
For 25 years, Steven Halpern, editor of TheStockAdvisors.com, has surveyed the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is one of 100+ ideas in the Best Stocks for 2008 report.
"I like Aflac (NYSE: AFL) as a top conservative choice for 2008," says Chuck Carlson, editor of The DRIP Investor. "The stock is a true 'steady eddy' performer and represents a cornerstone holding for any dividend reinvestment-based portfolio.
"Aflac is the number one provider of "guaranteed-renewable" insurance in the U.S. and the number one insurance company in terms of individual insurance policies in force in Japan. The firm insures more than 40 million people worldwide.
"Aflac's products should see good demand going forward as copays and deductibles are likely to increase for US and Japanese workers over the next several years.
"From a dividend perspective, there's a lot to like. Dividends have increased for 25 consecutive years, and dividend growth has been impressive. Dividends have been increased twice in 2007. With the consensus earnings estimate of $3.80 per share in 2008, look for the firm to give shareholders a generous dividend boost next year.
"Overall, the company offers the stability and consistency investors crave during volatile markets and the stock should handily outperform the market in 2008. Investors should note that Aflac offers a direct-purchase plan whereby any investor may buy shares directly from the company, the first share and every share."
MOST NOTEWORTHY: Total SA, HLTH Corp, Aflac First Solar and Town Sports were today's noteworthy upgrades:
Citigroup upgraded Total SA (NYSE: TOT) to Buy from Hold following the company's Q3 results. JP Morgan upgraded shares to Overweight from Neutral, as they believe the company's Q3 results underlined the strength of exploration and production growth prospects versus peers.
Friedman Billings raised its rating on HLTH Corporation (NASDAQ: HLTH) to Outperform from Market Perform following the company's proposal to merge into WebMD Health Corp (NASDAQ: WBMD) for a combination of cash and stock.
The firm also added shares of Aflac (NYSE: AFL) to its Top Picks List, as they believe Aflac is the only high quality, defensive growth story in the Life Insurance sector.
CIBC upgraded shares of First Solar (NASDAQ: FSLR) to Sector Outperformer from Sector Performer following the Q3 upside and set a $230 target on the stock.
Banc of America upgraded shares of Town Sports (NASDAQ: CLUB) to Neutral from Sell on valuation as they believe the downside risk is now priced into the stock.
OTHER UPGRADES:
Credit Suisse upgraded Nortel Networks (NYSE: NT) to Neutral from Underperform.
Continuing with our defensive stock series: given the current choppy / consolidating markets (or perhaps worse), Aflac (NYSE: AFL) is an insurance play that undoubtedly will add stability to your portfolio.
Efficient Aflac provides supplemental health and life insurance in Japan and the U.S. that cover special conditions.
Aflac Japan's insurance policies help pay for costs not covered under Japan's national health care system. A well-known company in Japan, Aflac's U.S. strategy mirrors its Japan operations: identify relevant products, implement a time-tested distribution system, emphasize efficiency, and build brand awareness. In the U.S., brand awareness has been built via the "Aflac duck," a successful ad campaign featuring a courageous, perseverant duck. Aflac's shares were down 88 cents to $64.88 in Thursday afternoon trading.
MOST NOTEWORTHY: Anheuser-Busch (BUD), Imax Corp (IMAX), Amgen (AMGN), Fifth Third Bancorp (FITB) and TiVO (TIVO) were today's noteworthy upgrades:
Citigroup upgraded shares of Anheuser-Busch (NYSE: BUD) to Hold from Sell as they see a 70% chance of an alliance between Anheuser-Busch and InBev in the next two years; they believe such a merger would create a market leader.
Merriman upgraded IMAX Corp (NASDAQ: IMAX) to Buy from Neutral after IMAX removed its overhang by completing SEC filings, while fundamentals have remained strong.
Citigroup upgraded Amgen (NASDAQ: AMGN) to Hold from Sell to reflect the potential for CMS to roll back proposed reimbursement cuts in oncology, an improving risk/reward profile and the potential for positive phase 3 denosumab data by year-end.
Kaufman upgraded TiVO (NASDAQ: TIVO) to Buy from Sell as indicators of the change in its business model suggest a positive transaction. The firm feels the the EchoStar (DISH) litigation provides an attractive risk/reward potential, creating an attractive entry point...
OTHER UPGRADES:
Aflac (NYSE: AFL) was upgraded at Lehman to Overweight from Underweight.
A recent editorial in the Financial Times discussed the idea of allowing shareholders to vote on executive pay, a privilege that British investors already enjoy. Recently, Aflac Inc. (NYSE:AFL) became one of the few American companies to allow shareholders to have an advisory vote on executive compensation. The editorial expresses skepticism about corporate governance practices in America:
Mr Bush also called for executives to "show the world that America's businesses are a model of transparency and corporate governance". Which would be fine, except that they are not. US companies generally operate according to strict financial disclosure rules but shareholders have limited opportunities to influence executives beyond the extreme option of mounting a proxy fight to replace the board.
It makes sense to allow shareholders to have a say in executive compensation. Who better than the owners to decide how much the employees be paid?
MOST NOTEWORTHY: Websense Inc (WBSN) and Aflac (AFL) topped today's most notable upgrades:
Cowen upgraded Websense Inc (NASDAQ: WBSN) to Neutral from Underperform and considers shares fairly valued.
Suntrust Robinson Humphreys upgraded Aflac inc (NYSE: AFL) to Buy from Neutral based on an expected rebound in sales and solid earnings.
OTHER UPGRADES:
Oppenheimer upgraded the Oil & Gas Sector to Buy from Neutral, seeing a potential upside as oil prices may have hit bottom.
Matrix upgraded shares of Harman Int'l Industries Inc (NYSE: HAR) to Buy from Hold and expects the company to continue to benefit from growing automotive sales and the demand for professional equipment.
JP Morgan expects strong 2007 earnings growth with upside to consensus estimates for CH Robinson Worldwide Inc (NASDAQ: CHRW), upgrading shares to Overweight from Neutral.
Citigroup upgraded shares of Sony Corp ADR (NYSE: SNE) to Buy from Hold, with a $56 target.
Bowater Inc (NYSE: BOW) was upgraded to Neutral from Underperform at DA Davidson.
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Here are some highlights from this past week's 
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Slow approach to raising bank capital loses the race against write-offs
Cramer on BloggingStocks: The SEC's waffling will be deadly
How Fannie and Freddie will fail
